5 Steps to Start Building Your Emergency Fund Today

While personal finance is one discipline you never neglect, have you ever wondered “How much emergency fund should I have?”

It’s easy to overlook an emergency fund, particularly when you are busy juggling priorities like health insurance, mutual funds, stocks, your retirement portfolio, or your long-term investment corpus. However, building an emergency fund is of utmost priority, given that you may need the amount for medical emergencies or unforeseen events demanding sudden expenses.

After all, life throws unexpected events, and none of us remain prepared for these unwelcome incidents. Think of a large hospital bill, car repairs, or a dry run for your business for a few months. It’s always wise to have a financial cushion to back you up as you deal with financial stress. With your emergency fund in place, you get a shield to battle the unpredictable!

Personally, I experienced a lot of mental peace once I had my emergency fund in place. So, having this fund is not just about building wealth. I feel that having this mental peace helps me in my professional endeavors. Knowing that I need not take high-interest loans or remain exposed to financial vulnerabilities gives me a sense of comfort.

In this guide, I will show you how to get emergency money through an emergency fund and establish your financial stability.

1. Assess your financial situation

Evaluate current expenses and income

At the outset, it’s important to have a clear understanding of your current financial standing even before you start building your emergency fund. So, evaluate your monthly income and expenses, creating a detailed budget outlining all the sources of your income. This should include your salary, freelancing work, or any other stream of revenue.

Now, list down your regular expenses like rent, mortgage, utility bills, transportation expenses, groceries, and other overheads.

Identify areas where you can cut back

Once you prepare this list, try to identify where you can curtail unnecessary expenses. Once you free up some funds, you can direct them towards your emergency fund.

For instance, you may have to make small sacrifices without compromising the quality of your lifestyle. Dine out twice a week rather than thrice, or refinance your loans for lower interest rates. I started saving my emergency fund with this approach, without financially stressing myself.

Set a realistic goal for your emergency fund

Now that you have identified where you can curtail costs, start putting aside funds for your emergency. So, if you are wondering how to get emergency money without having any additional source of income, the secret lies in building an emergency fund.

When I started accumulating my funds, I was wondering “How much emergency fund should I have?” To simplify the answer, I would recommend you build an emergency fund equal to six months of living expenses. However, you need to customize this to your financial condition. Consider the stability of your job, your family size, and other financial obligations. If you are doing business with variable monthly income, it’s wise to have a larger fund.

2. Create a budget

Track and categorize expenses

One of the most essential steps in creating your emergency fund is to decide on a budget. So, I would recommend you to track your expenses over a month. Use spreadsheets to categorize expenses under essentials (like groceries and utilities) and optional (entertainment or dining out).

In this process, you will get a realistic idea of where you are spending your money. Interestingly, curtailing small optional expenses can help you build your emergency fund.

Allocate a portion of your income toward savings

Now that you are aware of your spending habits, allocate a part of your income towards savings. As a thumb rule, you need to save 20% of your income, putting it aside for the emergency fund. If possible, automate your savings by transferring a part of your salary to a dedicated account for the fund.

Prioritize saving over unnecessary spending

As you start saving your emergency fund, you would need a mature mindset. Always prioritize your savings over unnecessary expenses like impulse purchases. It’s fine to indulge in occasional parties, but when you make spending money a habit, accumulating for your emergency fund becomes challenging.

I would recommend distinguishing what you need and what you want. Needs include essential overheads like utilities, groceries, and household rent. Wants to include optional expenses like partying out, fashion, and entertainment.

So, when you start making conscious choices, you can cut back on impulse purchases and pacify the growth of your emergency fund.

3. Start saving consistently

Decide on a saving strategy

Once you create your budget and decide how much you can save, it’s crucial to come up with a saving strategy. I would recommend two approaches in this regard:

  • Percentage of income:Personally, I started saving 20% of my monthly income as an emergency fund. You can fix a certain percentage based on your income and goals.
  • Fixed amount:Regardless of fluctuations in your income, you can save a specified amount each month. This approach is more consistent when you consider your progress in accumulating the emergency fund.

When you start saving, decide on a strategy that works well for you, considering your finances.

Automate your savings by setting up automatic transfers

Automating my savings to create an emergency fund worked for me. With most banks, you set up an auto-debit system where a certain amount will be credited to your emergency fund savings account each month.

With this approach, you won’t be accidentally spending the amount for other purposes. Besides, this helps in cultivating discipline in handling finances. Being financially mature, you should understand that accumulating your emergency fund is a non-negotiable part of your money-handling habit.

Stay committed and avoid dipping into the fund for non-emergencies

I would acknowledge that many individuals find it tempting to lower their savings and channel funds for non-emergency purposes. However, financial commitment is crucial, and you should not forget the purpose of the emergency fund.

So, resist the urge to spend the amount on vacations or become a victim of impulse purchasing.

4. Explore additional income sources

Research part-time or freelance opportunities

At times, building your emergency fund may require more financial input from the source. If you feel that your existing income source is falling short, consider engaging in freelancing or doing some part-time job depending on your skills.

You will come across many freelancing websites where you can find weekend or part-time jobs. These additional income streams can couple up as a consistent source of funds.

Consider selling unused items or starting a side business

If you are wondering how to get emergency money, I would recommend you sell off unused items at your household or start a side business. Check out your garage or attic for unused furniture, clothing, electronics, or collectibles. Selling them off can fetch you some funds to grow your emergency fund.

Also, if you have a particular passion or skill, try to monetize it and start a side business. From graphic designing to web development and tutoring to photography, you can offer your skills as services to establish additional income sources.

Channel this extra income directly into your emergency fund

Cultivating financial discipline, channel your extra income through freelancing, business, or consulting into your emergency fund. Try not to use up the amount for upgrading your lifestyle or spend it on luxury items. This approach will define your commitment to financial security.

5. Optimize and grow your emergency fund

Reassess and adjust your budget periodically

Remember, your financial stature keeps changing and it doesn’t remain static. So, it’s important to evaluate “How much emergency fund should I have” from time to time. As you grow in your profession, your income increases, and so do lifestyle expenses. Job changes, promotions, or even unexpected expenses should be factored in.

I personally revisit my budget at least once a year and make necessary adjustments. With this approach, I can allocate the right portion of my income to my emergency fund.

Aim to increase your savings contributions over time

As you stabilize your income, try to increase the amount you save for your emergency fund. Boosting your savings gradually can help you take you to your goal much faster. So, whenever you enjoy a salary hike, make sure to increase the portion you allocate to your emergency fund.

Consider investing the fund to maximize growth potential

Now that you have a substantial emergency fund in place to cover your immediate needs, consider investing the amount in safe avenues. Liquidity is crucial when it comes to investing in an emergency fund. So, go for a low-risk account and put a part of the funds in it.

This approach is effective in beating the effect of inflation over time. Investing a part of your emergency fund would not only enhance your financial stability but also bring you peace of mind knowing that you will be growing your investments.


Having an emergency fund is more than a strategy to ensure financial comfort amidst unpredictable turns of events. With an adequate emergency fund in place, you can enjoy mental peace and start prioritizing other financial goals.

If you are still wondering when you should start building your emergency fund, the time is now. In this article, we have outlined the comprehensive steps to build the fund. Consider reading some money management books or consulting financial blogs to explore the concept of emergency funds along with saving and investing. Start saving for the rainy days now and grow your financial security with confidence!

Related posts

Why Investing in Emerging and Renowned Artists Is a Wise Move

Investing in art has evolved beyond mere aesthetic appreciation; it has become a savvy financial move for many. From supporting emerging talents…

Sustainable Forex Trading Practices: Balancing Profit and Responsibility in the UK

The foreign exchange (forex) market is the world’s largest and most liquid market, with over £4.75 trillion traded daily. In the UK,…

9 Best CFD Trading Platforms in the UK

The trend of trading in the financial market, contract for difference (CFD) trading has come where many people want to invest and…